Banking revolution changed economic landscape
On July 19, 1969, India witnessed a landmark moment in its economic history when 14 major private banks were nationalised by the government led by Prime Minister Indira Gandhi. This bold and controversial step marked a turning point in India’s development trajectory, shifting the control of significant financial resources from private hands to the public sector.
Until then, the Indian banking system was largely controlled by big industrialists who prioritised credit to large businesses, often at the expense of agriculture, small industries and rural development. Banking services were concentrated in urban areas and rural India, where nearly 70% of the population lived, remained severely underbanked.
The decision to nationalise banks was guided by a socialist vision of inclusive growth and equitable distribution of wealth. The 14 banks that were nationalised each had deposits of over Rs 50 crore. These included major institutions like Bank of India, Bank of Baroda, Punjab National Bank, Central Bank of India and Canara Bank.
The move aimed to align the banking sector with the country’s planned development goals under the Five-Year Plans. It sought to ensure that the flow of credit reached neglected sectors such as agriculture, small-scale industries and the weaker sections of society. It also intended to curb the monopolistic tendencies of a few industrialists who had disproportionate influence over the economy.
Nationalisation had several far-reaching effects. The number of bank branches expanded dramatically, especially in rural and semi-urban areas. Between 1969 and 1990, the number of rural bank branches grew from just over 1,800 to nearly 30,000. Priority sector lending was institutionalised and banking became a tool for social transformation.
However, the move was not without criticism. Some economists argued that it led to inefficiencies, bureaucratic delays and politicisation of lending. Over time, public sector banks were plagued by non-performing assets and required periodic recapitalisation by the government.
Despite these challenges, bank nationalisation is widely acknowledged as a pivotal reform that laid the foundation for financial inclusion in India. It democratised credit, enabled the Green Revolution by supporting agricultural investments and played a crucial role in nation building.
A second round of bank nationalisation followed in 1980, bringing six more banks under government control. Together, these steps ensured that over 90% of the banking sector came under public ownership.
More than five decades later, as India now moves towards consolidation and even partial privatisation of banks, the events of July 19, 1969, remain a powerful reminder of how financial policy can shape the destiny of a nation.
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